Category Archives: Financial

The area of self-reliance dealing with increasing and controlling ones financial resources to both meet immediate needs and long-term objectives.

The lure of "bulk"

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As a general rule, buying bulk is a good way to save money. But one has to be careful. Take for example my recent toilet paper shopping for my business. We have a regular catalog for a business supplies, so I first looked there. We could buy TP by the case, getting a case of 96 rolls for about $50. Sounds good.

But then I compared it with our household brand. We get that stuff in packs of 24 rolls for about $4.80. That’s about 20 cents compared to about 50 cents in the bulk case. Not so great. But then I remembered that there are different sizes of rolls. I quickly checked the stuff we use at home, and it worked out to 88 square feet per roll. Armed with that information I checked the bulk stuff again. They didn’t give any figures on square footage.

Comparing apples and oranges–the bane of bargain shopping.

Fortunately they did list sheets per roll, and so did our household brand. It turns out the bulk stuff has about 500 sheets per roll, whereas the household stuff only has about 175. Simple math reveals that with the bulk stuff you’re paying about .112 cents per sheet, where the household TP comes in at .114 cents per sheet. Woo. Big difference. You’re not really saving much going bulk in this case.

Now the supply catalog gives even bigger discounts the more cases you buy, but we’re a small business. It’ll probably take us a year to use up the entire case. It’s worth it to always have some on hand–we can’t exactly close the shop while we run to the store for more TP–but really, it’s not that much of a savings.

Far too often that’s how it is buying bulk. Rather than really providing savings, they will mask information to make it only look like you’re getting more for your money. They make it as hard to compare with the “regular” quantities as they can. You may save some money, but you have to buy a lot before you really start to see any significant savings.

Do your homework and your math. There are real deals out there. But now that bulk is big business, it’s still very much “Let the buyer beware.”

Friends don’t let friends retire broke

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The title of this post is the slogan of my financial adviser. I’ve had a financial adviser for close to ten years now, and for me it’s a good thing. I won’t go so far as to say everyone needs a financial adviser, though. Like most things, that really depends. But what you can’t afford to do is not plan for your financial future at all. Even if you can’t currently afford to save, you really should have a plan to get to where you can.

With that in mind, you have two options in planning for your financial future. You can work with a financial adviser, or you can do it yourself. Doing it yourself is possible, if you’re willing to do the legwork and homework. I tried it for about a year while my first financial adviser forgot I was still a client. I went to MotleyFool.com like my brother recommended and read up on their approach. And I tried it for awhile using fake money.

What I found is that I lack both the patience and cool-headed-ness necessary to be my own financial adviser. I manage my money pretty well, but I don’t do so well at researching stocks and funds (which is unusual for me–I’m a professional researcher), and I do terribly at thinking long-term in my investing. If something starts to do poorly I start to panic.

So in my case a financial adviser is necessary. And I found him. Or rather he found me. Paul was going door to door, as required by the company he works for, and spoke with my wife. Knowing that I’m interested in such things she recommended he call sometime when I was home. He called, but it was a bad time and I put him off. It was bad timing the next two or three times as well. But he persisted and that alone, if nothing else, convinced me he might be a good replacement for my previous adviser, who I hadn’t heard from in over a year. Anyone willing to try that many times for a chance to talk with me would probably not let me sit so long without contact once a customer.

And Paul has been great. His company’s investing style matches my own. He knows his stuff, and has been conscientious about not racking up unnecessary fees. He took time to find out what my life goals are and, without being judgmental, devised a strategy to help us get there. He encouraged us to save as much as we could, while leaving money for financial difficulties.

During my extended unemployment is where he has shown the most. I’ve not been able to save anything during this time, obviously. I can’t be making him much money. But he’s been there, regularly checking in to keep tabs on our situation, help us find the best way to draw on our savings when necessary, and to offer suggestions and encouragement. He’s even offered to put in a recommendation for me if I decided to apply with his company–which I have seriously considered, seeing as I love their approach, products, and personnel so much.

I can’t wait to get back into the black income-wise and start saving again. But in the mean time, I rest a little more comfortably knowing that I’ve got Paul on my side. Any money he’s made off me he’s earned in spades.

As I’ve said, not everyone needs a financial adviser. But unless you have the discipline and the know-how, you may want to consider it.

The cost of "free"

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My sister, over at Knot in the Rope, has a post on how misleading many “free” can be. Very few things are really free.

What is the mentality of “free”? It’s the belief that “free” means there is NO cost!  Take the lunches I mentioned:  sure, they’re not asking the kids who come to hand over some cash to get lunch, but that food doesn’t just materialize out of nowhere and the people there cooking and serving aren’t just doing it out of the goodness of their hearts.  SOMEONE is paying for this program — in this case the federal government, which translates to the taxpayers!

Read the whole thing.

 

Getting rich quickly – It’s the new black

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It’s almost as if there were millions of people out of work and looking for anything to keep themselves and their families afloat. Every day my spam box fills up with various schemes for getting rich quickly by working at home with so-n-so’s new wealth generation system. It’s even on the radio!

I have to congratulate these selfless entrepreneurs. They have found the key to easy wealth and rather than just retiring on their millions they are deigning to sell us the secret. The only way they could be any more charitable would be to just give it away! But I won’t hold my breath on that one.

No, tough times bring out the best and worst in people. The worst are out there coming up with new schemes to separate the desperate from their cash. As I’ve indicated before, I may even have fallen for one. But some should be pretty easy to see through. If these “wealth generation systems” are so wonderful, why do these people have to sell them? And why do they need to pay for bulk emailings to market it? If the results are so amazing, we should have noticed their sudden affluence and be beating down their door to get it!

But no, chances are their “system” is to tell you how to get other people to fall for the same scam you did. Fleece enough people and you can make good money too. For awhile. Unfortunately, as long as the economy stays bad I suspect many of these people will actually do quite well.

 

Are we free if we are in debt?

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Karen Boroff raises the question in New Jersey Voices:

Which one of us can be free when we owe others sums beyond our ability to repay? How as a nation can we be free with billions and trillions of debt? Years ago, singer Tennessee Ernie Ford had a hit with “Sixteen Tons,” telling the tale of a miner who “owes his soul to the company store.” Each day, the poor soul got deeper in debt. That is the track on which we are traveling.

Key quote:

People who see no end to debt lose their self-reliance, almost addicted to the next round of handouts. Addiction does not free ourselves nor does it make us brave.

Is self-reliance the enemy of specialization?

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I came across an interesting article on GuruFocus.com putting economics in very simple terms; ie. our individual survival depends on accumulation of energy, that specialization allowed for more efficient energy collection, and that money represents stored energy:

People are creatures of the Earth. Like any other living organisms, we need to consume energy in order to survive. In a competitive world of survival, energy sources other than the sun don’t simply present themselves to us. So we must expend our energy in order to obtain more energy on which we survive. In early times, this meant expending energy for hunting and gathering. In more recent times, this meant expending energy in farming. It is only natural that we seek the most efficient expenditure of our energy to obtain more energy. Being that we are a cooperative species, this eventually led us to the idea of specialization.

Specialization allows for people to be experts in their respective tasks. This allows for dramatic improvements in quality and efficiency. Once people decided to specialize and cooperate by sharing ideas and trading with one another, a great wave of invention and innovation ensued, materializing in the agricultural, industrial and informational revolutions.

Read the whole thing. It’s an interesting explanation and take on things.

Tax refunds are not a savings plan

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When I was in college I would get a decent chunk of money back every year as a tax refund. I would call it my “Government Savings Program”. That was until my brother explained it to me. I was giving the government an interest-free loan for up to a year using money that I could actually be earning interest on. My perspective changed after that.

Don’t get me wrong. I am in no way anti-taxes. I prefer a government to no government, and there are quite a few services I enjoy. I’m willing to pay for those, even if I don’t always agree with everything my taxes get spent on. It’s the price we pay for living in a country where we are free to complain about, protest, or even seek to overturn government taxation. I could post in this blog that I think taxes are criminal, and all politicians should be shot–and I won’t be noticed, let alone arrested, beaten, and/or shot.

However, there is no reason why we should float the government a large loan every year just so we can feel good about the sudden influx of capital every April/May. The reality is that we could have been using that money ourselves for a variety of good causes, such as stimulating the economy for real, not just on paper. All it takes is a little bit of bookkeeping and discipline on our part.

Your W-2 form allows you to claim deductions that reduce the amount your employer withholds from your paycheck for taxes. If you find you are getting more than $1000 back from the Federal Government each year you may try increasing the number of deductions you claim by one or two. The goal is to get as close to zero refund as you can, though a few hundred dollars over or under certainly isn’t a problem.

Then note the amount difference in your paychecks. This amount, if you are already living within your budget, is extra cash flow that can be used for a variety of things, such as savings, investments, or funding some of your self-reliance projects such as building up a reasonable reserve of food, building a 72-hour kit, or laying up a supply of firewood.

It is worth noting, however, that the federal government and the state government tax at different rates. For example, even though I get close to a $1000 refund each year from the US Treasury, at least half of that goes into paying the amount of state tax I owe. I don’t adjust my W-2 further because the difference between federal and state taxes are pretty closely balanced. I use one to pay the other and walk away a few hundred dollars left over.

I’m sure most of us have said–or at least thought–that we could use our tax money at least as well as the government does. Well, if your yearly refund is larger than it should be, here is your chance to prove it.

 

Managing money requires visibility

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Many people will tell you the first step in managing your money is to create a budget. While I do believe budgets to be important, for many people the first step is something much more basic: getting in the habit of tracking your money.

This is not as easy as it sounds. In our highly-competitive society, there are more options for anything than we really need or know what to do with. For example, consider all the different options for simply paying for a purchase:

  • Cash
  • Check
  • Credit card
  • Debit card
  • Money order
  • Gift card
  • Credit
  • Electronic Funds Transfer
  • PayPal

I’m sure there are more, but you get the idea. Most of us use at least three of those options. I personally use all but two between my personal spending and my business. With so many different ways to buy something, each with a different means and rate of tracking, it can become very easy to at least temporarily forget where your money has gone.

It can be very easy, for example, to charge something on your credit card and then forget you’ve made that purchase until the statement comes up to a month later. It can be nearly impossible to stick to a budget if you spend money in a certain category, forget you spent is, and then spend that money again thinking you still have it available. When the bill comes you will likely find yourself surprised and over budget.

So what is the solution? Well, there are two, actually, that work together: Simplify and Track

Simplify: Do you really need all those different payment methods? Do you really need, for example, to have your savings account at one bank and your checking account at another? Do you need to use three different credit cards? Do you really need to use both checks and a debit card? Look for ways you can reduce the number of “Outgoing Streams” you use. While I did admit to using nearly all of the payment methods listed above, there are only two I use with any regularity.

Look for ways to simplify. Use only one credit card if you can. Put all your accounts together at a single bank. Choose to use either your debit card or your checkbook exclusively. If you find it difficult to choose between some options, always select the one that is easier to track.

Track: Develop a habit of gathering evidence of every purchase you make. Hold on to receipts. Write down all checks you write in your check register. Check your credit cards and/or bank accounts online at least twice a month. Keep a running total of all your accounts and expenditures in a single place and consolidate all your records into that Single Source of Information (SSI) at least twice a month.

I use Quicken as my SSI, but anything will do, so long as it is simple and you’ll use it. I keep the books for my homeowners association in a paper ledger, for example. because it’s simple and portable (for taking it to meetings for the members to audit the books). I consolidate my records three times a month; mid-month, just before month-end, and after month-end when my bank statement comes. Others may need less often than that, and some may need more, but I’d recommend no less than twice a month or you’ll miss making important payments.

Once you Simplify and Track you’re in good shape for devising a budget and getting your finances under control. You can’t control what you can’t see and understand. If you don’t develop the discipline to at least track your money you’ll never be able to develop the discipline to create and stick to a budget. Tracking your money is the foundation to every other step that leads to financial self-reliance and, potentially, independence.

Frugality, financial compatibility, and the silver lining of unemployment

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One of the smartest financial decisions I ever made was marrying my wife. I’m a reasonably frugal guy, but she is great at it. I think it comes from living in Estonia under the Soviet Union for awhile. They didn’t have much, so everyone got used to getting by on very little. As a result she’s never been one to spend extravagantly.

When we got married I wasn’t making much money. It seemed like a lot at first because it was the first time I’d ever been on salary instead of wages, so thinking “lump-sum” made it sound so much greater than it really was. At any rate, when we got married things were a bit tight. We’d just barely squeaked our way into a home loan to buy my brother’s house, and it seemed like we were one major appliance failure away from financial ruin. Yet because we were frugal we got by, and even absorbed a few lesser financial problems.

In time, however, my income started rising. And that’s where my wife really helped out. My first instinct was to increase our budget to match our increased income. We could afford to live a little better now, I figured. But she was firm, insisting that we instead put that money into savings. I grudgingly went along with it at first, but after awhile I got a bit excited to see how much we were putting away and how we could endure minor setbacks more easily.

That became the pattern for the ten years we’ve been together. My income continued to rise, and as we were having kids, our expenses rose, too. But because of our frugality our expenses did not keep pace with my income. We were spending more money, but we were saving more, too.

Am I ever grateful for that savings now–and that frugality. I lost my job nine months ago, and though unemployment insurance helps, we still rely on our savings quite a bit. Our savings has been holding up amazingly well. That’s partly because we were saving so much, but it’s also because we know how to be frugal. The minute I knew my job was going away we went into “bare minimum” mode and were able to cut our budget by about a third. That really helps the savings go farther.

Eventually I will find work again, and then we’ll see the silver lining. Unemployment has helped us identify and eliminate some of the fat from our budget. When my income goes back up again it will be much easier to simply say “no” to letting our budget increase again rather than having to look for ways to cut back once we’ve gotten used to spending more. We can move forward with a much more efficient budget and with any luck rebuild our savings that much faster.

Of course first I have to find work, so our savings may continue to take a hit for awhile, but it’s comforting to know that I’ve got such a strong partner in my wife. It’s a big relief knowing that she’s working just as hard or harder to keep our expenses down right now. We’re under enough strain right now without having to clash over money as well.

Being married to someone I’m financially compatible with is a true blessing.